The Inland Revenue Service (IRS) has kicked their crypto tax clampdown up a notch by sending out a new round of letters to crypto investors and traders, this time targeting those who the agency suspects have underpaid their taxes. Following a recent spate of letters suggesting that crypto traders may have ‘accidentally’ forgotten to factor in their crypto earnings on their tax returns, this new round targets those who the IRS thinks have misreported their income and offers them a suggested amount to level up.
CP2000 Notices Suggest Next Level for IRS
The IRS sent a first wave of letters at the end of July to those it suspected might have tax owing from cryptocurrency gains made in the past year, using data it had obtained from exchanges like Coinbase following requests for information. This first wave was more generic in tone, while the new wave features specific amounts of money that the IRS says individuals owe. These letters, called CP2000 notices, indicate that the IRS is on the tail of a number of crypto traders, and as history tells us they don’t let go easily.
Essentially, a CP200 letter means that the IRS has received a report on an individual from a financial institution (e.g. a crypto exchange), which has reported a different amount of income than the individual has stated they made. The individual has 30 days to respond to the letter, either by paying the amended fee or refuting it.
How to Respond to a CP2000 Notice
It is important for anyone receiving a CP2000 notice to know that this is not any kind of demand or threat. It may be that you simply made a mistake in your reporting, in which case you can accept the IRS’s figures and pay the extra tax without any further recriminations. If however you think the figures the IRS suggests are wrong you can respond stating that. It should be noted that your chances of an audit increase if you dispute the IRS’s figures without strong evidence to back up your case.
Either way, it is important to respond by the stated deadline to avoid further penalties, as this will also count against you.
